ECB should be ready to add more stimulus

Wednesday, Aug 26 2015

With no major data releases from Eurozone, investors are speculating what should next ECB move be.The European Central Bank is less than one-third of the way into a program to pump more than $1 trillion into the eurozone economy, but it already faces pressure to do more amid global growth concerns, volatile financial markets and the sharp decline in oil prices.

Since the stimulus decision was made in January, much has changed in the global economy. China isn't growing as fast as expected and other emerging markets face struggles. The timing of rate increases in the U.S. and U.K. is less certain. The euro, which fell sharply in anticipation of ECB stimulus, has strengthened recently. These forces will make it harder for the ECB to achieve its primary mandate of getting annual inflation back close to 2%, from its current level just above zero.

When inflation is too low, economic growth is restrained by higher debt burdens and weak investment. In a worrying sign, market-based measures of inflation expectations have fallen in recent weeks, signaling doubts about the ECB's ability to meet its inflation target. ECB may be forced to act eventually, particularly if stimulus measures in China and other Asian countries, or delayed rate increases in the U.S., increase the value of the euro. Typically, easy-money policies weaken a currency.

Euro is currently being traded few points above 1.1430 level. Pair is likely to find support around 1.14 area and resistance above 1.15 handle. Later today, in the US session, Durable Goods Orders figures are scheduled for a release.

More in this category: « BBA Mortgage Approvals up to 46,000 Durable Goods Orders unexpected rose in July »